The ongoing debate in Pakistan questions whether increasing tobacco taxes is an effective strategy to reduce smoking rates. While higher taxes are meant to discourage consumption, Fawad Khan, spokesperson for Mustehkam Pakistan, argues that this policy may backfire by pushing smokers toward cheaper, illegal cigarettes.
Reports indicate that the legal tobacco industry contributes nearly 98% of the sector’s total tax revenue, whereas illicit cigarette manufacturers account for only 2%. Since the last tax increase in 2023, illegal tobacco sales have surged to over 50% of the market. As smokers shift to tax-evading alternatives, Pakistan faces an estimated annual tax revenue loss exceeding Rs 300 billion.
Experts Warn: Higher Tobacco Taxes Could Backfire, Boosting Illegal Trade
Fawad Khan urges policymakers to reassess their approach, stating that higher taxes place an unfair burden on tax-compliant companies while simultaneously boosting the illegal cigarette trade. “We need to ensure a level playing field for businesses following tax laws, rather than penalizing them with excessive taxation,” he said. Instead of continually raising taxes on the legal market, he stressed the need to combat the growing illicit trade to protect both public health and the economy.
The expanding illegal tobacco market not only impacts revenue but also threatens public health. Even the International Monetary Fund (IMF) has expressed concern over tax evasion in Pakistan’s cigarette industry during its recent loan program review.
Pakistan’s Tobacco Policy Faces Scrutiny as Illicit Market Surges Past 50%
Fawad Khan also highlighted how Anti-Tobacco Organizations (ATOs), allegedly backed by illicit cigarette manufacturers, continue pushing for tax hikes on legal cigarettes without addressing the illegal trade. He pointed out that these organizations often use the World Health Organization (WHO) to influence policy decisions. However, WHO’s credibility has come under scrutiny, leading to the suspension of its funding by the U.S. government.
Experts emphasize that Pakistan must adopt a balanced strategy that targets both the legal and illegal tobacco markets. A policy focused solely on increasing taxes on the legal sector, without addressing the rampant sale of illicit cigarettes, could prove counterproductive in the long run.
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